Proven Methods for Accelerating Cost Reduction in ASCs: Thoughts From Provista Senior Director Richard Peters

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In an April 18 webinar titled "Proven Methods for Accelerating Cost Reduction," Richard Peters, senior director of surgery services for Provista, discussed strategies to reduce supply costs. He discussed the benefits of standardizing supplies, joining a GPO, investing in a supply chain management system and signing up for a commitment program, as well as giving an overview of common mistakes in the ASC supply chain process.

What are surgery centers doing to address healthcare reform?
Mr. Peters began the webinar by discussing what surgery centers are doing to tackle the storm of changes through healthcare reform. According to a survey conducted by Provista in December 2011, surgery centers are preparing for inevitable changes in the following ways:

• 55 percent of respondents are cutting costs
• 42 percent of respondents are expanding or diversifying service lines
• 13 percent of respondents are considering a joint venture with a hospital
• 10 percent of respondents are considering acquisition by a hospital or management company
• 2 percent of respondents are considering alignment with an IPA

He added that the survey uncovered the following 'strategies for success' planned by ASCs for the upcoming year:

• 14 percent will aggressively cut costs
• 9 percent will aggressively expand services and revenue streams
• 9 percent will improve managed care contracting practices
• 66 percent will do some combination of the above

Mr. Peters explained that if surgery centers plan to cut costs in 2012, they must focus on supply chain as a key area for improving profitability. Every dollar you remove from supply costs increases your profitability or lets you invest in service lines, specialties or equipment, he said. He outlined several ways surgery centers let inefficiencies damage supply costs:

1. Too many stakeholders in a particular category. Mr. Peters said surgery centers often have 2-5 suppliers in a particular category, hurting their ability to leverage volume to negotiate better pricing. He said surgery centers should work to reduce the number of stakeholders in each category in order to give more volume to each individual stakeholder.

2. Lack of dedicated supply chain expertise in a surgery center. Though many surgery center leaders have experience with supply chain management, they often give the responsibility to clinical staff with little experience negotiating contracts and researching pricing.

3. Inefficient processes and controls in ordering supplies. Mr. Peters said surgery centers often rely on the supplier or distributor to manage the ordering process, which leads to natural inefficiencies.

4. Minimal use of information technology. "Technology should go deeper than ordering systems," Mr. Peters. He said while there are systems surgery centers can use to manage case costing and physician preference cards, those systems are often not tied together and can cause inefficiency.

Improving supply chain processes and costs
Mr. Peters said many surgery centers are looking to improve their supply chain processes in 2012, with 34 percent planning to standardize like products, 24 percent planning to evaluate their current GPO membership and 19 percent planning to implement an order management system. He gave the following suggestions to accelerate cost reduction:

1. Join a GPO. When joining a GPO, Mr. Peters recommends creating a work plan to address your areas of concern. "It's more than just signing a membership document or a letter of participation that allows you to access pricing," he said. Partner with the GPO in order to take full advantage of their offerings, and lay out your priorities so they can help you target your problem areas.

For example, let your GPO know your supply chain goal for the year — do you plan to reduce supply costs by 10 percent? Tell them that. Identify your top-spend items, whether that means high-volume items or low-volume, high-dollar items. Discuss your capital expenditures and constructive activity; while GPOs play mostly in the commodity world, they may be able to help with equipment requirements if you're consolidating or expanding your surgery center. He also recommends setting realistic goals for each quarter to make the process of cutting costs manageable.

2. Standardize your supplies. Mr. Peters said many surgery centers lose money by using several suppliers for every category rather than consolidating into one or two. Examine your supply sources and determine how many distributors are delivering your product. "It comes down to your willingness and ability to move to a smaller number of partners in a particular category," Mr. Peters said. He said this will benefit both the surgery center and the supplier or distributor: The surgery center will likely receive better pricing by ordering more supplies, and the supplier/distributor will receive more business from the surgery center.

3. Consider commitment programs. Commitment programs reward surgery centers with savings for committing to a higher level of standardization with one supplier or a set of suppliers, Mr. Peters said. He said the important thing is to understand your obligation when you join a commitment program — you may have a limited number of suppliers to access, or you may have to commit to a certain level of standardization to receive discounts. You should also speak with your physicians to determine whether they are willing to standardize prior to speaking with commitment programs.

4. Implement a supply chain management system. According to the Provista survey, 76 percent of surgery centers use manual systems, including paper records or spreadsheets, to track and monitor supplies. Mr. Peters recommends investing in a supply chain management system that will order all supplies through the system, work with bar coding technology, pull reports from the system on supply chain trends, alert you when stock is low, track back or open orders and analyze whether you are paying the right price.

He said the supply chain management system should let you send and receive electronic purchase orders and program preferred vendors into the system. This type of technology is an investment but it can drastically reduce supply chain costs and make the ordering process simpler and less stressful for your staff.

Access a PDF version of the Provista webinar here.

Access an audio version of the Provista webinar here.

Learn more about Provista.

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